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October 2023
Pillar Two
Entity Classification Flowcharts
https://www.pwc.com/us/en/services/tax/multinationals/pillar-two-model-for-data-and-reporting.html

2
The OECD's Pillar Two GloBE rules published in December 2022 provide a
mechanism for jurisdictions to collect a minimum amount of tax in each
jurisdiction where a Multinational Enterprise (MNE) operates. Such rules are
applied on a jurisdictional level to provide a Top-Up Tax in such jurisdiction
where the effective tax rate falls below the minimum threshold. Before any
charging provisions may apply to determine GloBE income and any Top-Up Tax,
MNE Groups must first determine whether they are required to comply with the
GloBE rules.
First, the MNE Group must have earned EUR 750 million in consolidated revenue
in two of the prior four testing years (i.e., the MNE Group must meet a required
minimum threshold in earnings). Thus, purely domestic groups or groups earning
lower than the threshold should not be subject to the GloBE rules.
Second, the GloBE rules will only apply to those entities within the MNE Group
that constitute a Constituent Entity (CE) under Article 1.3. The flowcharts
below
help to provide a roadmap as to what entities qualify as a CE for purposes of
applying the GloBE rules, including Minority-Owned CEs, Partially-Owned CEs,
and JVs. The flowcharts also provide a roadmap to the types of Flow-
Though Entities and Hybrid Entities.
PwC | Pillar Two Entity Classification Flowcharts October 2023
Background
2

START HERE
Is there an Entity? An Entity is (i) any
legal person (other than a natural
person) or (ii) an arrangement that
prepares separate financial accounts.
Is the Entity an Excluded
Entity? Or (i) is at least 95% of
the value of the Entity owned
by one or more Excluded
Entities and (ii) does the Entity
operate exclusively to hold
assets or invest funds for the
benefit of the Excluded Entity
or carry out ancillary activities.
Or (i) is at least 85% of the
value of the Entity owned by
one or more Excluded Entities
and (ii) is substantially all of
the Entity’s income Excluded
Dividends or Excluded Equity
Gain/Loss? See Article 1.5.
Yes
Is it a place of business (including a deemed place of business)
situated in a jurisdiction and treated as a permanent
establishment in accordance with an applicable Tax Treaty in
force provided that such jurisdiction taxes the income
attributable to it in accordance with a provision similar to Article
7 of the OECD Model Tax Convention on Income and on
Capital?
If there is no applicable Tax Treaty in force, is it a place of
business (including a deemed place of business) in respect of
which a jurisdiction taxes under its domestic law the income
attributable to such place of business on a net basis similar to
the manner in which it taxes its own tax residents?
If a jurisdiction has no corporate income tax system, is it a
place of business (including a deemed place of business)
situated in that jurisdiction that would be treated as a
permanent establishment in accordance with the OECD Model
Tax Convention on Income and on Capital provided that such
jurisdiction would have had the right to tax the income
attributable to it in accordance with Article 7 of that model?
Is it a place of business (or a deemed place of business) that is
not already described above through which operations are
conducted outside the jurisdiction where the Entity is located
provided that such jurisdiction exempts the income attributable to
such operations.
Yes
Not a Constituent EntityNo
Are the assets, liabilities,
income, expenses, etc. (the
'Financial Results') of the Entity
reported in the UPE’s
Consolidated Financial
Statements?
Constituent Entity
Are the Financial Results of the
Entity excluded from the UPE
Consolidated Financial
Statements solely on size or
materiality grounds, or on the
grounds that the Entity is held for
sale?
Go to Special CE Based on
Ownership
Yes
Not a JV or
Constituent
Entity
Supplemental Information
Excluded Entities include a (i) Governmental Entity, (ii) International
Organization, (iii) Non-profit
Organization, (iv) Pension Fund, (v) Investment Fund that is a UPE, and (vi)
Real Estate Investment
Vehicle that is a UPE.
If the Entity is not treated as a separate taxable person by the jurisdiction in
which it is located and the
jurisdiction of its owner, go to the following flowchart to determine if special
rules based on tax treatment
apply:
Special CE Based on Tax Treatment
Is the Entity 100% directly or
indirectly owned by the UPE?
Constituent Entity
Not a Special CE Based on
Ownership
No
No
No
No
Yes
No No
Yes
Yes
NoYes
Joint Venture
The GloBE Rules are
generally applied as if the JV
was the UPE of a separate
MNE Group. The UPE and
any other Parent Entity must
allocate the Top-up Tax of the
JV Group based on its
Allocable Share of the Top-up
Tax.
Is the Entity directly held
by an Excluded Entity?
Is the Entity a UPE of an
MNE Group that is subject
to the GloBE Rules?
Is the MNE Group that
holds the interest in the
Entity composed entirely
of Excluded Entities?
Joint Venture
Does the UPE hold
directly or indirectly at
least 50% of the Entity’s
Ownership Interest (and
account for the interest
under the Equity Method)?
Yes
No
No
No
No No
Constituent
Entity Flowchart
3
PwC | Pillar Two Entity Classification Flowcharts October 2023






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